Modern portfolio theory

b.Assume ACES shares beta is 1.45, the 12-month risk-free rate of return is 5.3%p.a and the market risk premium is 4% p.a. Outline a strategy for a rational investor if BHPs shares are presently priced to achieve a 10% p.a. expected rate of return.

c.If an equity fund manager believes the Indonesian stock market will begin to go downwards over the next year, how might the manager fine-tune his/her equity portfolio to help safeguard investors wealth under his/her management? Assume that the fund only invests in equities.

d.Diversification cannot eliminate all portfolio risk. Do you agree with the statement? Explain your reasons